Income From Salary

PROJECT FOR DIRECT & INDIRECT TAXES

COMPUTATION OF INCOME FROM SALARY A CASE STUDY OF ANY EMPLOYEE

Page | 1

CERTIFICATE FROM THE ORGANIZATION

This is to certify that:

Has/ have successfully completed a study on Procedure of Computation of Income from Salary - A case of State Bank of India and have submitted the project report on the same.

The study conducted was satisfactory. We wish them all the best.

Sign of the officer

Page | 2

TABLE OF CONTENTS

Executive Summary.................................................................................................4 Remuneration: what is it? ....................................................................................5 Components of Remuneration System………………………………………….7 What is deducted from salary? ........................................................................10 What exemptions are made in salary? ……………………………………......11 Case Study: State Bank of India…………………………………………………...13 Acknowledgements ...…………………………………………………………………20 Bibliography………………………………………………………………………………21

Page | 3

Executive Summary The following case study acquaints the reader with the Remuneration System of the Public Sector Bank – State Bank of India. It gives the reader a brief insight about the fundamentals of what constitutes a salary structure for an employee. Then through a Balance Sheet of the Company we will explain the various elements listed and their relevance. Notes are mentioned for the same. In conclusion we have prepared a sample salary slip to show how SBI remunerates its employees.

Page | 4

Remuneration: what is it? Remuneration is pay or salary, typically monetary payment for services rendered, as in an employment. Pay is described in employment legislation as "wages". The employer has a duty to pay wages, which are generally dealt with as an express term in the contract of employment. Wages comprise the basic rate of pay plus any other monetary element (e.g. overtime, bonus, commission etc.). Wages may be paid in the form of an annual salary, where it is usual to pay on a monthly basis, or, for hourly paid employees, at weekly intervals. Salaried employees are usually paid one-twelfth of their annual salary each month. Hourly paid personnel are usually paid for the number of hours worked during the relevant week. The basic salary or rate of pay may be supplemented by any overtime, bonus or commission earned. This then becomes gross wages from which the employer is required to deduct the appropriate national insurance contributions and income tax due.

What is included in salary? According to Section 17(1) salary includes: 1. wages and salaries including advance of salary 2. fees and commission 3. perquisites 4. addition to salaries or wages 5. payment received by an employee in respect of any period of leave not availed of by him, i.e. leave encashment 6. annual accretion to the balance at the credit of an employee participating in a recognize provident fund to the extent it is taxable

Page | 5

Perquisites It is a personal advantage or benefit derived by virtue of employment office or position. A perquisite denotes an additional monetary benefit going into the pocket of or enriching the employee. Some perquisites are taxable while some are non taxable. The taxable perquisites should be included in salary income.

Page | 6

Components of a Remuneration System

Page | 7

 Direct Compensation Basic pay It’s the monthly base amount a person is entitled to. This is the biggest part of the pay, typically 50-60 per cent of the cost to the company (CTC). The basic tends to form a higher portion of the salary at junior levels. At senior levels, the proportion of basic goes down and variable pay components such as target-linked bonuses come into the picture. Basic determines the other components of an employee’s pay such as provident fund (PF) contribution (both by employee and employer) and house rent allowance, entitlement to loans by employers and, sometimes, designations and salary grades are linked to the basic. Dearness allowance Dearness allowance is a part of a person’s salary in India. It is calculates as a percent of the basic salary. The amount calculated is then added to the basic pay as well as the HRA to get the total salary. It is calculated on the basis of consumer price index. Dearness allowance is basically given by the company so that rise in prices of consumer price index will be compensated by increase in dearness allowance. As consumer price index is very volatile and variable dearness allowance is has a separate heading in salary slip. City compensatory allowance City Compensatory allowance is an additional allowance. It is not exempted from tax like HRA. It enables the employee to bear the high cost of living prevailing in an urban area or a city. If an employee is stationed at a bigger city, the person is required to spend more therefore the employer compensates the employee with this allowance.

Page | 8

 Indirect Compensation Travelling allowance It depends on area to area. Conveyance allowance is basically paid to cover an employee’s work-related travel needs. An employee has to travel during the job so this takes care of the transportation expenses. Up to Rs 800 is exempt from tax every month. This component helps make the pay more tax-efficient and influences the take home pay of those at lower levels of pay. Provision for newspaper In certain factories/establishments the employees are reimbursed the cost of Newspapers while in some other factories/establishments the employees are paid monthly newspapers allowance instead of reimbursement of the cost of the Newspapers. This allowance is called newspaper allowance. Telephone allowance All officers of SMGS III and above, all Branch Managers and other functionaries who are permitted by competent authority are eligible for this allowance. In addition to free calls, reimbursement will be as under: TEGS VII – 2000 calls per month TEGS VI – 1500 calls per month SMGS IV & V – 800 calls per month MMGS II & III – 300 calls per month JMGS I – 200 calls per month

Page | 9

What is deducted from salary? Deductions under section 16  Entertainment allowance : sec 16 (2) -It is only given to the government employees -It is initially included in the gross taxable salary -Thereafter section 16(2) allows a deduction from salary to the government employees to the least of the following: (a) 1/5th of the basic salary (it would include dearness allowance excluding bonus, perks, allowances) (b) Rs. 5000 (c) Amount of entertainment allowance actually received - A non- government employee is no entitled to any deduction for EA  Professional tax : sec 16(3) Section 16 (3) allows a deduction from salaries of the amount of a tax on employment by or under any law by the state government under article 276 of the constitution

Deductions under section 80  Deduction under sec80C (a) Life insurance premium: payment of premium which is in excess of 20% of actual capital sum assured shall not be included in gross qualifying amount. (b)contribution to statutory provident fund (c) National saving certificates  Deduction under sec80D Medical insurance premium paid: The maximum amount of deduction is rs.15000 for normal citizen and rs.20000 for senior citizen

Page | 10

What exemptions are made in salary? Exemptions under section 10  Leave travel concession : sec 10(5) It is exempt to the following extent: -in the case of an individual -the value of any travel concession or assistance received by or due to him -From his employer for himself and his family, in connection with his proceeding on leave to nay place in India.  Encashment of leave salary : sec 10(10AA) - It means cash received by an employee against leave earned but not taken and accumulated. - Leave encashment while in service is taxable In case of government employee: Any payment received by an employee of the central govt or state govt as the encashment of the earned leave to his credit at the time of his retirement, is wholly exempt from tax In case of other employees: Leave salary is exempt to the extent of the least of the following amounts: -Encashment of the earned leave, not exceeding 30 days per each completed year of service -10 months average salary on basis of basic salary drawn for 10 months immediately preceding the date of retirement -The amount notified by the government which is 3, 00,000 -And the amount actually received  Payment from statutory / public provident fund : sec 10(11) -A provident fund to which the provident funds act, 1925 applies -Or from the provident fund set up and notified by the central government Page | 11

 Payment from recognized P.F : sec 10(12) -The accumulated balance due and becoming payable, -To nay employee participating in a recognized provident fund -To the extent provided in rule 8 of part A of the 4th schedule to the act  House rent allowance : sec10 (13A) -Any special allowance granted to an employee by his employer to specifically meet expenditure actually incurred on the payment of rent for residential accommodation occupied by him -Where as no exemption is available: 1. When such accommodation occupied by the Assesse is owned by him 2. The Assesse has not actually incurred any expenditure on payment of the rent in respect of such accommodation occupied by him.

Page | 12

CASE STUDY: STATE BANK OF INDIA  Salary slips of different management levels

Grade

JMGS – I

JMGS – I

JMGS – I

Designation

Assistant Manager

Assistant Manager

Assistant Manager

Basic pay

10000

14880

21040

Dearness allowance

18

27

38

400

540

540

850

1265

1788

350

350

350

2750

2750

2750

Gross

14368

19812

26506

PF (Employers contribution)

1000

1488

2104

Net [Gross + employers contribution to PF]

15368

21300

28610

PF (Employees contribution)

1000

1488

2104

CTC (per month)

16368

22788

30714

Annual CTC

196416

273456

368568

City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance

Page | 13

Grade

MMGS - II

MMGS – II

MMGS - II

Designation

Deputy Manager

Deputy Manager

Deputy Manager

Basic pay

13820

19360

22920

Dearness allowance

25

35

41

540

540

540

1175

1646

1948

500

500

500

3025

3025

3025

Gross

19085

25106

28974

PF (Employers contribution)

1382

1936

2292

Net [Gross + employers contribution to PF]

20467

27042

31266

PF (Employees contribution)

1382

1936

2292

CTC (per month)

21849

28978

33558

Annual CTC

262188

347736

402696

City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance

Page | 14

Grade

MMGS - III

MMGS - III

MMGS - III

Designation

Manager

Manager

Manager

Basic pay

18240

21040

23520

Dearness allowance

33

38

42

540

540

540

1550

1788

1999

500

500

500

3300

3300

3300

Gross

24163

27206

29901

PF (Employers contribution)

1824

2104

2352

Net [Gross + employers contribution to PF]

25987

29310

32253

PF (Employees contribution)

1824

2104

2352

CTC (per month)

27811

31414

34605

Annual CTC

333732

376968

415260

City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance

Page | 15

Grade

SMGS - IV

SMGS - IV

SMGS - IV

Designation

Chief Manager

Chief Manager

Chief Manager

Basic pay

20480

23520

24140

Dearness allowance

37

42

43

540

540

540

1741

1999

2052

700

700

700

3575

3575

3575

Gross

27073

30376

31050

PF (Employers contribution)

2048

2352

2414

Net [Gross + employers contribution to PF]

29121

32728

33464

PF (Employees contribution)

2048

2352

2414

CTC (per month)

31169

35080

35878

Annual CTC

374028

420960

430536

City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance

Page | 16

Grade

SMGS - V

SMGS - V

SMGS – V

Designation

Assistant General Manager

Assistant General Manager

Assistant General Manager

Basic pay

24140

25380

26620

Dearness allowance

43

46

48

540

540

540

2052

2157

2263

700

700

700

3850

3850

3850

Gross

31325

32673

34021

PF (Employers contribution)

2414

2538

2662

Net [Gross + employers contribution to PF]

33739

35211

36683

PF (Employees contribution)

2414

2538

2662

CTC (per month)

36153

37749

39345

Annual CTC

433836

452988

472140

City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance

Page | 17

Grade

TEGS - VI

TEGS - VI

TEGS – VI

Designation

Deputy General Manager

Deputy General Manager

Deputy General Manager

Basic pay

26620

28660

29340

Dearness allowance

48

52

53

540

540

540

2263

2436

2494

900

900

900

4125

4125

4125

34496

36713

37452

PF (Employers contribution)

2662

2866

2934

Net [Gross + employers contribution to PF]

37158

39579

40386

PF (Employees contribution)

2662

2866

2934

CTC (per month)

39820

42445

43320

Annual CTC

477840

509340

519840

City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance Gross

Page | 18

Grade

TEGS – VII General Manager

TEGS – VII General Manager

TEGS – VII General Manager

Basic pay

29340

31600

32600

Dearness allowance City compensation allowance House Rent Allowance Provision for newspaper Travelling allowance

53

57

59

540

540

540

2494

2686

2771

1000

1000

1000

4400

4400

4400

Gross

37827

40283

41370

PF (Employers contribution)

2934

3160

3260

Net [Gross + employers contribution to PF]

40761

43443

44630

PF (Employees contribution)

2934

3160

3260

CTC (per month)

43695

46603

47890

Annual CTC

524340

559236

574680

Designation

Page | 19

Acknowledgements We as a group hereby give our sincere thanks to Prof. Mr. Sandeep L. Chopde for giving us this opportunity to use our knowledge in the subject of “Accountancy” and improve our knowledge in the subject of “Taxation”. We would like to thank Mr. Suhas Phalnikar, Branch Manager of SBI, Fort and Mrs. Pratima Avasare, Branch Manager, Andheri for providing us with valuable information regarding the project. We also thank Mumbai Education Trust for providing us with the books, notes, the invaluable information and help.

Page | 20

Bibliography  Varsha Ainapure, Mukund Ainapure Direct and Indirect taxes. Mumbai: Manan Prakashan, 2000  A.M. Sharma Understanding Wage System. Delhi: Himalaya Publication House, 2004  State Bank of India Officers’ Association (Mumbai Circle), Service Conditions at a Glance, 2008 

State Bank of India http://www.statebankofindia.com/ http://www.onlinesbi.com/



Income Tax Department http://www.incometaxindia.gov.in/

 Google http://www.google.co.in/

Page | 21